CURRENCIES

THE POUND may rise this week as reports indicate that the UK economy is bouncing back while inflation is subdued.

"We're buyers of the Goldilocks scenario coming through in the UK," said Murray Gunn, of Standard Life Investments. "You've got strong growth and low inflation. I don't see any signs that rates in the UK are going to be raised this year. We're relatively positive on sterling."

The pound, which was trading at $1.6163 on Friday, fell 0.33 per cent against the dollar last week. It could rise to $1.70 in the coming months, said Mr Gunn. The pound fell more than 1 per cent against the euro last week, leaving the euro at 0.6668 pound per euro on Friday.

Traders are looking forward to UK reports which are expected to confirm that the economy is recovering. Signs of growth reinforce expectations that the Bank of England, which last week left its benchmark rate unchanged, won't lower rates again.

Steady rates, in turn, mean the money market return on sterling deposits won't fall and that investors searching for yield are likely to remain enamoured of the pound. Currently, three-month sterling deposits offer investors six basis points less than three-month dollar deposits.

A jobs report coming out on Wednesday is likely to show that the number of Britons out of work and claiming benefits fell by 5,000 in July, helping keep the unemployment rate at a 19-year low.

The British Retail Consortium reports on July retail sales on Tuesday. Last month the BRC said retail sales rose 1.8 per cent in June from the previous month, after two months of decline.

The pound could get added support from any indications that the economy is growing fast enough to prompt the central bank to raise interest rates before long.

"The market expects that the Bank of England's next move will be to raise interest rates in the coming months," said Patrick Laub, chief currency trader at Landesbank Girozentrale Hessen-Thueringen in Frankfurt. "We can go lower in euro-sterling."

Higher interest rates would increase the return on sterling deposits. The Bank of England has lowered the bellwether interest rate seven times since October in a bid to prevent recession and encourage the borrowing that generates economic expansion.

In one sign that traders expect the central bank to reverse some of those rate cuts before the end of the year, three-month interest rate futures contracts expiring in December yield 56 basis points more than current three-month lending.

Yet, even as the economy rebounds, inflation threats are few, reducing the need for rate rises. Inflation erodes bonds' fixed value, so as long as it stays moribund, UK bonds could be supported.

Figures due on Monday are expected to show producers raised prices only 0.1 per cent in July, after holding prices steady for a second straight month in June.

"We're seeing strong growth data but the inflationary signs are becoming more muted," a fund manager said. "Our call is [for a] stable rate to year end."

Jobs numbers slated for release on Wednesday are expected to show wage cost growth and average earnings growth slowed in the three months through June.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test
Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

Twins have a mountain to climb during Tour of duty

Yates brothers will target the steepest sections in bid to win a stage in France
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy